Nissan Surrenders 2012 Rally as Yen Strengthens, Chinese Protest

The Nissan Motor Co. Altima vehicle is unveiled during a news conference at the New York International Auto Show in New York, U.S. Photograph: Scott Eells/Bloomberg

Sept. 25 (Bloomberg) -- Nissan Motor Co. became the first
of Japan’s three-biggest automakers to surrender this year’s
early stock rally after the yen appreciated and anti-Japan
sentiment escalated in China.

Nissan fell 2.7 percent to 682 yen in Tokyo yesterday, 10
yen below its level at the start of the year, and gave up the
27 percent January-to-March rally that was its biggest in nine
quarters. Honda, which started the year with its largest
quarterly surge in a decade, has lost most of those increases
and Toyota Motor Corp. has also ceded almost half its advance.

The reversal highlights Japanese carmakers’ increasing
sensitivity to China, where nationwide protests against Japan
flared this month and where Goldman Sachs Group Inc. estimates
Nissan generates 30 percent of its profit. The yen, which has
appreciated more than any major currency since April, has also
damped earlier optimism over Japanese automakers, which were
recovering from production disrupted by last year’s natural
disasters in Japan and Thailand.

“The yen has been the main issue eroding Japanese
carmakers’ share-price gains from the second quarter,” Satoru
Takada, a Tokyo-based auto analyst at Toward the Infinite World
Inc., a securities research company, said by telephone
yesterday. “Concerns about China are the last straw for Nissan,
which sent its stock plunging since last week.”

Showrooms Torched

Nissan, which counts China as its biggest market, fell to
as low as 669 yen on Jan. 12 before surging to as high as 900
yen on April 3. The shares of all of Japan’s carmakers declined
in Tokyo trading yesterday.

The three-biggest Japanese automakers’s stocks fell an
average of 13 percent in the April-to-June quarter after surging
33 percent in the preceding three months -- the biggest
quarterly gain since they jumped 64 percent in the second
quarter of 1981, according to data compiled by Bloomberg.

Among smaller Japanese carmakers, shares of Mitsubishi
Motors Corp. and Mazda Motor Corp. erased their gains for the
year in April, while Suzuki turned negative in June.

In the past week, some demonstrators protesting Japan’s
purchase of a group of islands claimed by both Japan and China
torched auto showrooms and smashed Japanese-branded vehicles,
forcing Toyota, Honda and Nissan to temporarily shutter their
factories in the country. As protests continue, China’s
Passenger Car Association estimated that Japanese brands will
lose their lead this year over German nameplates in the country
for the first time since 2005.

Yen’s Advance

Before protests in China flared up, investors had pushed up
the yen on lingering concerns about the European debt crises and
weaker-than-estimated growth in the U.S. and China. The yen
gained 2.9 percent from April to June, based on Bloomberg
Correlation-Weighted Indexes, which track 10 developed-nation
currencies. The Japanese currency was last quarter’s biggest
gainer after being the biggest loser in the January-to-March
period.

The yen, whose gains hurt the value of Japanese exports
when repatriated, has been hovering near a post-World War II
high against the dollar and an 11-year high against the euro
since the April-June quarter. It’s also at a stronger level than
those projected by Japanese automakers in their latest financial
forecasts.

Toyota, Nissan and Honda have forecast the yen to trade at
an average of 80.6 against the dollar in the year ending March
31 and 105 against the euro, according to their latest financial
projections. Every one-yen movement against the dollar leads to
a 2.4 percent drop in operating profit at Nissan, 3.3 percent at
Toyota and 2.9 percent at Honda, Goldman Sachs wrote in a
research note in April.

Tsunami, Floods

Executives have also expressed concern. In an April
interview, Nissan Chief Executive Officer Carlos Ghosn likened
the yen to a “1,000-pound gorilla” threatening the recovery of
Japanese carmakers’ earnings, while Toyota President Akio Toyoda
has repeatedly referred to the strong yen as one of the “six
obstacles” facing Japan’s auto industry.

In terms of corporate earnings, Japan’s Toyota-led auto
industry is still rebounding from the tsunami in Japan and Thai
floods. Toyota and Honda expect their full-year profit to more
than double this fiscal year, while Nissan predicts net income
to climb 17 percent.

That’s not enough to lure investors such as Yuuki Sakurai,
President of Fukoku Capital Management Inc, who expects Japanese
carmakers’ sales to slow in the second half, as the Chinese
economy decelerates and after the Japanese government car
subsidy program ended, he said.

“It’s kind of a ‘stay-away from the risk asset’ for the
moment,” he said. “I may buy car stocks when the dust
settles.”